The Equity Premium and the Business Cycle: the Role of Demand and Supply Shocks

Michael Wickens, Peter Smith and Steffen Sorensen ()

No 7227, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper explores the effects of the US business cycle on US stock market returns through an analysis of the equity risk premium. We propose a new methodology based on the SDF approach to asset pricing that allows us to uncover the different effects of aggregate demand and supply shocks. We find that negative shocks are more important that positive shocks, and that supply shocks have a much greater impact than demand shocks.

Keywords: Business cycles; Demand and supply shocks; Equity premium; Stock returns (search for similar items in EconPapers)
JEL-codes: C32 C51 E44 G12 (search for similar items in EconPapers)
Date: 2009-03
New Economics Papers: this item is included in nep-cba and nep-mac
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Citations: View citations in EconPapers (1)

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Journal Article: The equity premium and the business cycle: the role of demand and supply shocks (2010)
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